Action hero is in a class of his own

King for a day . . . former GIO shareholder Shane King risked everything on a point of principle. Photo: David Moir

One man's courage was key to the success of the GIO class action, writes Anne Lampe.

Shane King this week became a hero for more than 23,000 dis-affected GIO shareholders. But the 32-year-old printing production planner from Sydney's Hoxton Park dismisses the platitudes over the role he played in this week's historic $112 million class action settlement.

It was King who put his house on the line. And it was King and his family who stood to lose everything if the $600 million damages case went against the shareholders.

So why did he do it? There was a principle at stake.

"The information that I had been given [by GIO] said don't sell because the company is worth a lot more than AMP have offered and that is what I based my decision on not to sell the shares. And then when it fell over I thought, 'Well they told us not to sell'."

With only 1,600 shares at stake, King's compensation package was a mere $2,112 - all for putting his house on the line.

But he is happy with the settlement figure and that his wife and two children, aged four and 11 months, are pleased the house now is safe.

"We [King and his wife Merryn] were both worried about and concerned about the house being on the line. But we were confident that we were right and that at some time along the way, we would go to court or a settlement would happen. We were confident we would win eventually."

At the time of the takeover, AMP - then still advertising itself as the investment powerhouse - offered $5.35 for GIO shares. The GIO board urged its shareholders not to sell because it said the shares were worth more than $6.

That was back in the days when AMP was flush from a de-mutualisation which valued its shares at $23. Armed with a brimming war chest, AMP was under the control of its ego-driven and ambitious American CEO, George Trumbull, who later departed with a $13 million handshake after a clash with the board.

Vast numbers of GIO shareholders listened to their board. They refused the $5.35-a-share offer, only to be forced to sell into a compulsory mop-up at $2.75.

In September 1998, 67,290 GIO shareholders - many of them mum and dad punters - launched a $600 million class action. Over the years the number of members who continued to fight on was whittled down to around 24,000.

The case soon became bogged down in complexities.

As well as suing GIO, King sought damages from GIO chairman David Mortimer and chief executive Nick Steffey along with six directors - Bruce Hogan, Ronald Ashton, Marina Darling, Andrew Kaldor, Lloyd Lange and David O'Halloran.

Five years later, after a string of disastrous investments in the UK life insurance and pensions market, the once unassailable AMP was on its knees.

AMP was ultimately successful with its takeover of GIO, but it was a hollow victory. It had bought a company riddled with buried reinsurance losses.

The takeover also led to the Australian Securities and Investments Commission mounting civil penalty proceedings seeking fines, banning orders and compensation from former GIO senior executives Geoffrey Vines, Frank Robertson and Timothy Fox. GIO's forecast $250 million profit at the time of the takeover quickly turned into a $750 million loss - a $1 billion reversal of fortunes in the space of a few months.

Before long, everyone involved in the case began pointing the finger at one another.

GIO quickly launched cross-claims against the defence advisers and GIO's auditor, PricewaterhouseCoopers, and its actuarial subsidiary, as well as Macquarie Bank and Grant Samuel & Associates.

GIO blamed Grant Samuel, claiming it was paid to check GIO's financial information for any holes in the accounts or provisions. Grant Samuel, which valued GIO shares at more than $6, retorted that it was entitled to assume the financial information provided to it by GIO directors was correct. After all, GIO had the reinsurance expertise not held by Grant Samuel.

A lot of reputations were at stake. As one party involved in the case observed: "The experts should not have accepted the crap served up by the GIO."

Macquarie gave advice on the contents of the letter sent to shareholders by Mortimer and Steffey not to sell their shares, as well as on financial information to be included in the part B statement.

In its filed defence, the bank says its retainer did not require it to investigate or correct GIO's figures regarding its reinsurance division to determine the extent of risk factors at play, or to investigate whether the profit forecast was correct, nor to test Grant Samuel's assumptions.

The blame shifting pointed to a lengthy and bitter hearing, which was set down to commence in May next year. Expert witnesses were lined up to pick holes in the corporate advice given, with senior executives of those companies exposed to lengthy cross-examination, the GIO directors grilled over their letters to shareholders and corporate reputations being forensically examined and possibly shredded. The competing legal teams attending the directions hearing had grown to about 30. It was going to be a costly case to run.

And as Australia's largest ever shareholder class action dragged on in court for months, it would chew up AMP's management time and money, as well as providing a daily reminder of how AMP had misspent $3 billion acquiring a basket case, at a time when it is trying to put its acquisition mistakes behind it.

In early March, as AMP was fighting for survival, Steve Burns, of Ebsworth & Ebsworth, called Maurice Blackburn Cashman partner Bernard Murphy.

Burns, who was acting for AMP, said his client was interested in exploring the possibility of an out-of-court settlement.

MBC had taken the case for the disaffected shareholders on a no-win, no-fee basis, and had incurred significant legal bills. It was convinced it had a strong case.

On April 4, Murphy flew up from Melbourne and, with Dr Peter Cashman from MBC's Sydney office, met Burns at Ebsworth's King Street offices.

The parties agreed it was impossible to calculate the damages claimed until it was known exactly how many class-action members were still in the fray and how much they had lost.

Negotiations intensified after July 24, when a separate set of negotiations were taking place between AMP, GIO directors and the advisers in the action.

AMP was willing to wear half the settlement sum, but told the cross-claimants they would have to wear the other half.

It was made plain that if they did not settle, AMP would continue the action against the directors and advisers to recoup money under cross claims.

Between August 3 and the evening of August 7, telephones around the city rang hot with negotiations. A heads of agreement was signed at 5.50pm that night, with MBC verbally accepting an offer from AMP to settle the proceedings for $97 million, plus costs of $15 million. Late the next morning, the heads of agreement were signed after some more skirmishes between AMP and the cross-claimant parties.

At a directions hearing on August 8, counsel representing GIO, Ian Jackman, SC, strongly resisted Justice Michael Moore's attempt to move the approval of settlement to the following week. Mr Jackman told the court that any settlement deal had to be finalised before August 29 due to commercial imperatives. What these were he did not say.

He could have been referring to the deadline set by the Australian Prudential Regulatory Authority for AMP's demerger plans, or it could have been an internal deadline set by an AMP board impatient at the protracted negotiations. In any event it appears from Jackman's comments that AMP wanted the decks cleared by the end of the month.

The terms of settlement between the directors and cross claimants remain confidential. None of the parties will comment.

As John Green, a former senior GIO executive who worked through the bitter takeover battle, observed: "AMP directors let Trumbull run the agenda.

"On the GIO side, they had [Nick] Steffey. Here you had two guys with egos who you could not climb over with a 35-foot ladder. They hated each other and stood to make a lot of money. Both boards let them.

"I worked for the two companies for 35 years. The first took over the second one. The second was obliterated and the first is now a basket case."